Will Russia and Saudi Arabia agree to stabilize the oil price?

The contenders in the oil business are like cats. From the sound of them, you can’t tell if they are fighting or making love. While Russia and Saudi Arabia scrap in public over the Saudi-led air strikes against Iran-backed Houthi rebels in Yemen, the oil market believes that the two oil giants may be reaching an accommodation on oil prices. Here is Reuters yesterday, quoted in Al-Arabiya:

Saudi Arabia’s oil minister Ali al-Naimi said on Tuesday that the kingdom stood ready to “improve” prices but only if other producers outside of OPEC joined the effort.

The DailyBrief

Must-reads from across Asia - directly to your inbox

Naimi said Saudi Arabia had pumped around 10.3 million barrels per day (bpd) in March, marking an increase from previous months. He did not say why output had risen. Naimi also said he expected oil prices that have languished near six-year lows to improve in the near future.

Oil prices extended gains late on Tuesday as traders took Naimi’s comments as sign he may be open to renewed talks with producers like Russia and Mexico over curbing production in order to revive prices. U.S. crude rose 3.5 percent to close at $53.98 a barrel, near it’s highest this year.

“The kingdom is still ready to help bring back stability to the market and improve prices in a reasonable and suitable manner, but with the participation of the main producing and exporting countries and based on clear principles and high transparency, so the kingdom or the Gulf countries or OPEC countries do not shoulder that alone,” he said at a Saudi economics conference.

Russia has been perceived as an Iranian ally against Saudi Arabia, a supporter of the Assad regime in Syria which Saudi Arabia seeks to overthrow. Iran’s embrace of U.S. President Obama, though, leaves Russia in an entirely different position. As the astute M.K. Bhadrakumar wrote in Asia Times April 5:

The collateral damage inflicted by the U.S.-Russia reset to Russia’s relations with Iran was substantial. The mending of the fences calls for a determined effort from both sides.

Ironically, Russia had spurned the overtures of the one Iranian president who had been ideologically closest to the world-view that Moscow today espouses – Mohammad Ahmedinejad – whereas, Moscow is today called upon to deal with, arguably, the most ‘western-oriented’ government in Iran in the Islamic Republic’s three-and-a-half decades of history. And this is at a time when Russia’s own ties with the West are at an all-time low point since the Cold war ended.

Suffice it to say, the loci of the Russian and Iranian foreign policies have been moving in opposite directions lately and it poses a challenge for the two countries’ diplomats to reconcile this contradiction. The relationship needs attention at the leadership level.

A quiet, partial rapprochement between Saudi Arabia and Russia could change the dynamics in the oil market. Hence the sudden short-covering in the crude market.